Learn About the Mortgage Insurance Premium Tax Deduction

This deduction was renewed through 2017 and might yet be renewed again

Rural house in Vermont.
••• © Jeff Randall / Photodisc / Getty Images

Mortgage insurance premiums can increase your monthly budget significantly—an additional $83 a month or so at a .5 percent rate on a $200,000 mortgage. These premiums were tax deductible through 2017, when the deduction was originally scheduled to expire — however, it has been extended every year. 

The Legislative Roller Coaster

The Tax Relief and Health Care Act first introduced the mortgage insurance deduction back in 2006. Congress extended the deduction in 2015 when it passed the Protecting Americans from Tax Hikes (PATH) Act, but the deduction expired on December 31, 2016. The extension was good for only one year. 

Then Congress stepped in again. The Bipartisan Budget Act of 2018 retroactively extended the mortgage insurance premiums deduction again through 2017.  This is one of those tax deductions that tends to be resuscitated annually. On January 8, 2019, California Representative Julia Brownley introduced the Mortgage Insurance Tax Deduction Act of 2019, which would permanently enshrine the deduction in the tax code and would apply to all amounts paid or accrued since December 31, 2017. However, no further action has been taken on the bill.

The Further Consolidated Appropriations Act, 2020 extended the mortgage insurance premium deduction again through December 31, 2020.

Deductions for mortgage interest and real estate taxes also remain safe in 2020, although they've been tweaked a bit under the Tax Cuts and Jobs Act.

Mortgage Insurance 

Lenders typically require private mortgage insurance to secure the debts in the event of default. It's charged to buyers who are unable to or don't want to make down payments of at least 20 percent on property. The insurance policy can be issued by a private insurance company or by the Federal Housing Administration or the Department of Agriculture's Rural Housing Administration. The Department of Veterans Affairs has a funding fee instead of monthly mortgage insurance. 

Loans That Qualify 

The mortgage insurance premium deduction applies only to loans taken out on or after January 1, 2007. The insurance policy must be for home acquisition debt on a first or second home. A home acquisition debt is one whose proceeds are used to buy, build, or substantially improve a residence.

You typically can't rent the second home out—you must use it personally, such as a vacation home. You might still qualify a deduction, however, if you treat the second home as an income-producing business asset. Home equity loans don't qualify for the deduction, nor do cash-out refinances. However, refinance loans up to the amount of the original mortgage are covered, however. 

Income Limitations 

Taxpayers who can claim this deduction are middle-income families because it phases out and becomes unavailable at higher income levels.

If you're single, filing as head of household, or married and filing jointly, the deduction begins phasing out by 10 percent for each $1,000 by which your adjusted gross income (AGI) exceeds $100,000. In effect, this means that you're not eligible to claim the deduction if your adjusted gross income exceeds $109,000. If you're married and filing separately, the phase out begins at $50,000 and increases for each $500 by which you exceed this limit, effectively meaning you aren't eligible if your AGI exceeds $54,500.

The IRS issued a new Form 1040 for the 2019 tax year.

Claiming the Deduction

Mortgage insurance premiums paid during the year are reported on Form 1098. You should receive this form from your lender after the close of the tax year. You can find the amount you paid in premiums in box 4. There’s currently no limit on the amount of the deduction you can claim if you and your loan qualify. You can deduct this entire amount.

Mortgage insurance premiums are itemized tax deductions. They're reported on line 13 of Schedule A, "Interest You Paid." You can’t claim the mortgage insurance premiums deduction if you claim the standard deduction—you must itemize using Schedule A. 

And if you missed the boat and neglected to claim this deduction although you could have? All isn't lost. You can typically amend your tax return with the IRS for up to three years after you file the original return or two years after you've paid any tax due on that return, whichever is later.

Canceling Your Insurance

It can pay to check your current mortgage balance against your home's fair market value even if it turns out that you can claim a tax deduction for PMI again. You no longer have to pay private mortgage insurance when your equity in the property exceeds 20 percent, but it's unlikely that either your lender or the insurer will point this out to you.

No one is going to voluntarily cancel your policy for you when you hit this magic number—but you can. Be prepared to have your home appraised or a value otherwise assigned by a professional so you can prove the insurance is no longer required.

Even if it turns out that Congress does not renew the credit again, you might be able to save some money regardless by taking steps to cancel your policy. 

NOTE: Tax laws change periodically, and you should consult with a tax professional for the most up-to-date advice. The information contained in this article is not intended as tax advice and is not a substitute for tax advice. 

Article Sources

  1. Congress.gov. "H.R.6111 - Tax Relief and Health Care Act of 2006." Accessed April 9, 2020.

  2. U.S. House of Representatives Document Repository. "Protecting Americans From Tax Hikes Act of 2015." Accessed April 9, 2020.

  3. Internal Revenue Service (IRS). "Legislative Impact on Tax Forms." Accessed April 9, 2020.

  4. Congress.gov. "H.R.1892 - Bipartisan Budget Act of 2018." Accessed April 9, 2020.

  5. Congress.gov. "H.R.284 - Mortgage Insurance Tax Deduction Act of 2019." Accessed April 9, 2020.

  6. Congress.gov. "H.R.1865 - Further Consolidated Appropriations Act, 2020." Accessed April 9, 2020.

  7. Congress.gov. "Tax Cuts and Jobs Act." Accessed April 9, 2020.

  8. U.S. Department of Agriculture Rural Development. "Single Family Housing Guaranteed Loan Program." Accessed April 9, 2020.

  9. U.S. Department of Veterans Affairs. "Loan Fees." Accessed April 9, 2020.

  10. Consumer Financial Protection Bureau (CFPB). "What Is Mortgage Insurance and How Does It Work?" Accessed April 9, 2020.

  11. Internal Revenue Service (IRS). "Publication 936 (2019) Home Mortgage Interest Deduction." Accessed April 9, 2020.

  12. Internal Revenue Service (IRS). "Changes to the Deductibility of Mortgage Insurance Premiums (MIP)." Accessed April 9, 2020.

  13. Internal Revenue Service (IRS). "Topic No. 308 Amended Returns." Accessed April 9, 2020.

  14. Consumer Financial Protection Bureau (CFPB). "What Is Private Mortgage Insurance?" Accessed April 9, 2020.